Tax Incentive for Film Productions

How does the Tax Rebate System Work for Film Productions in Hungary?

The Hungarian parliament passed the film law, which grants a 25% state subsidy to those international productions that choose Hungary as filming location. The goal of the legislators was to improve the Hungarian film industry and to make it more competitive. The film law has been in effect for more than a decade without any glitches and has attracted countless European and American productions to Hungary. Several articles of the law were modified on in the past years. Our summary contains the latest conditions.

The Hungarian parliament passed the film law, which grants a 25% state subsidy to those international productions that choose Hungary as filming location. The goal of the legislators was to improve the Hungarian film industry and to make it more competitive. The film law has been in effect for more than a decade without any glitches and has attracted countless European and American productions to Hungary. Several articles of the law were modified on in the past years. Our summary contains the latest conditions.

The Amount of the Subsidy

The amount of the available subsidy is 25%, which can be applied to the film production’s total costs in Hungary.

What is Eligible for Subsidy?

In terms of genre, the following are eligible: feature films, short films, documentaries, nature films, animated films, made-for-TV movies and TV series. Not eligible for subsidy are commercials, reality shows, and those mundane fiction series that do not create any cultural value (i.e. soap operas.)

According to the law, the subsidy can be applied to productions that are mostly shot abroad and only a few scenes are filmed in Hungary. In this case, only expenses that are spent in Hungary and those foreign expenses that are directly associated with the scenes shot in Hungary are eligible for the subsidy.

Although there is no budget limit that would draw a line in terms of what size budget qualifies for a subsidy, there is, however a so-called production test that must be passed. This examines the proportion of Hungarian crewmembers in a given production. According to this, a production that is shot only to a lesser extent in Hungary but employs many Hungarian film crewmembers may still be eligible for a subsidy.

Another important condition that must be met is a cultural test. Practically this means that a subsidy cannot be granted to a film production that features a Hungarian shooting location that does not portray, to at least some extent, a European location; and/ or a production that is purely about violence or any other content that is severely detrimental to minors (adult movies.)

Act II of 2004 on Motion Picture, Article 12/B

A film shall meet cultural requirements if it scores at least 16 points based on the criteria established in the table below, in such a way that it scores points in at least four out of categories a)-n), and a) shall be considered a European co-production film, as determined in a separate law, if the co-production is made with Hungarian participation, or b) fulfils at least 2 of the criteria listed in Points a)-h):

a) the topic of the film or the work that serves as the basis for the film is based on a story (event) that is part of Hungarian or European culture, or is related to the presentation or reworking of a story (event) that is significant from a historical, mythological or religious aspect; Awardable points: 1

b) the topic of the film or the work that serves as basis for the film features persons or characters who are related to Hungarian or European culture, or are significant due to their relation to history, society or religion; Awardable points: 1

c) the film presents Hungarian or European traditions and lifestyles or promotes certain elements of these traditions and lifestyles; Awardable points: 1

d) the film is set at a Hungarian location or (an)other European location(s) or a related cultural setting, or its imagery presents a Hungarian location or (an)other European location(s) (city, region) or presents typical Hungarian or European cultural motifs; Awardable points: 1

e) the script of the film or the work that serves as basis for the film is based on the adaptation of a literary or other work of cultural value (works of applied and fine art, musical composition, etc.); Awardable points: 1

f) the topic of the film or the material that serves as basis for the film is focused on an issue that is relevant to Hungarian society or other European societies from a cultural, sociological or political aspect; Awardable points: 1

h) the film serves the better understanding of and familiarity with Hungarian and European culture and identity. Awardable points: 1

i) a film creating cultural value based on its genre; Awardable points: 4

j) contributors to the film include Hungarian citizens or citizens of other EEA States, or citizens of non-EEA States who won awards at international film festivals in their capacity as a: director, producer, director of photography, script writer, leading and supporting actors, composer, production designer, costume designer, editor, make-up artist, senior production manager/production manager or post-production manager (audio/visual/digital); Awardable points: 1 point for each 2 categories fulfilled, maximum 6 points

k) the final version of the film is produced in the language of an EEA State; Awardable points: 4

l) At least 51% of the participants of the film — with the exception of contributors who scored points in accordance with Point j) — are citizens of an EEA State or the film in question is a co-production that does not qualify as a European co-production film; Awardable points: 4

m) The shooting location is in Hungary; Awardable points: 3

n) The preparation of film production or the post-production takes place in Hungary. Awardable points: 3

A further condition is that the production company must agree to properly list the Hungarian state as a sponsor in the closing credits of the film.

What Expenses Can Be Included?

All qualified production costs. This essentially includes most below-the-line items (technical and crew production, expenditures for facilities, props, makeup, wardrobe, set construction, background talent etc.), but only to a certain extent, and under certain conditions, several above-the-line items qualify as well (directors, producers, performers.)

After completing the production budget, Progressive Productions will prepare a statement for the subsidies that can be applied for based on the items in the budget. Following that, Progressive Productions will register the production at the National Film Office (submitting the screenplay, budget). This organization then will review the budget proposal and will provide an official opinion. Registration must be done at least 30 days prior to shooting. This of course does not mean that no changes can be made to the budget after the registration, major modifications, however should be avoided.

After the start of shooting, the budget will be fine-tuned based on the actual services performed, which will also determine the final amount of the subsidy requested. Progressive Productions will be responsible for drawing these funds and transferring them to our partner’s account. After that, all expenses (based on actual receipts/invoices) will be reviewed once more by the National Film Office. After the audit, the office will issue the certificate for the subsidy.

When are the Subsidy Funds Transferred?

Subsidy funds are always transferred posteriorly. This means that before shooting begins, our partners must have the full amount of shooting funds at their disposal. This amount must be listed as an obligation in the Production Service Agreement that will be presented at the film office. (An entirely different regulation applies to those films, in which we participate as a co production partner and not as a service production company; in this case, the subsidy funds can be embedded in the production budget.)

The Hungarian state provides subsidy indirectly, through successful large corporations; it provides tax incentives to large companies that sponsor film productions. This way, at the end of the year during corporate tax filing time, a sponsor corporation is able to lower its basis of assessment for tax by an amount larger than the actual sponsorship amount (thus, the company can optimize its taxes with the help of the subsidy.) Progressive Productions’ role in this phase is either to locate this sponsor company or to hire a financial broker to find one in return for a commission. Another available option is a new deposit account created by the Hungarian state. The National Film Office can regularly deposit funds onto this account; therefore, if sufficient funds are available on this account, the subsidy can be transferred from here as well.

Although transferring of the funds can technically be performed any time after the film office has issued the certificate, current practice indicates that this usually happens at the end of the year when the sponsor corporations have reports on how much profit they generated and therefore can make a much more educated decision about sponsorships and the associated tax benefits.

In some cases if the subsidy funds are needed before the end of the year, one option is to get a bank involved, which can provide a loan before the actual subsidy funds are available.

In summary, this is a very favorable system even by international standards, which can be very attractive to productions of all kinds. Progressive Productions is committed to provide our partners with the best options possible if they pick Hungary.